DISTRIBUTION AND GROWTH IN LATIN AMERICA IN AN ERA OF STRUCTURAL REFORM

The first section of this paper reviews the most recent evidence on inequality in 18 Latin
American countries and shows that in all but four the changes in inequality over the
1990s were small and insignificant. The distribution depends on the ownership and rate
of return on assets, particularly human capital. In the short run changes in these two
variables tend to be offsetting-growth widens skill-differentials which is regressive, but
advances in education are progressive. The two effects roughly cancel each other out
absent severe macroeconomic shocks or revolutionary changes in the rules of the game.
The paper then summarizes various recent papers as well as the author’s recent work on
the impact of structural reforms on inequality. That work shows that the recent reforms
have had a negative but small regressive impact on inequality mainly because many of
the individual reforms had offsetting effects. Trade and tax reform have been
unambiguously regressive, but opening up the capital account is progressive. Finally, the
paper presents evidence of a significant slowdown in the growth rate and argues that
given this fact and the insensitivity of the distribution to feasible policy measures, the
main problem facing the region at present is not how to improve the distribution but
rather how the increase the growth rate.